Comments on: Employer demanding a third life insurance policy

Question: Employer demanding a third life insurance policy

GhostintheMachine — Thu, 01 Dec 2005 11:04:11 -0800

Ever have an employer require you to get a life insurance policy as part of the terms of your employment?

My wife's new part time, 2 year term job is demanding just that, even though she is already adequately covered by two policies. It's office work for a non-profit organization, and I can't understand the need. Perhaps it's some group insurance policy requirement - do they have those? Is this legal anywhere (I'm in Nova Scotia, Canada)?

By: evariste

evariste — Thu, 01 Dec 2005 11:09:49 -0800

I don't know about Canada, but in the United States, employers will very often take out their own life insurance policies on their employees. It's called Dead Peasant Insurance and it's a morally repugnant practice.

By: jon_kill

jon_kill — Thu, 01 Dec 2005 11:10:39 -0800

Wait wait wait.

In Quebec, you are required to be covered by a drug plan. Luckily, the government provides one if you aren't.

However, I can't understand why the employer demands _life_ insurance, of all things. I don't mean to be crass, but her passing away and who her beneficiaries are and what htey receive couldn't have less to do with anything.

By: jessamyn

jessamyn — Thu, 01 Dec 2005 11:16:38 -0800

I interviewed for a librarian job that I wound up not getting. They had a mandatory life insurance premium that I would have been required to pay. Since I didn't get the job, I don't know how "required" this really was, but for a $12/hour job I found it a pretty appalling requirement.

By: Nelson

Nelson — Thu, 01 Dec 2005 11:33:12 -0800

Who's the beneficiary on the policy?

By: expialidocious

expialidocious — Thu, 01 Dec 2005 11:39:26 -0800

Who would the beneficiaries of the insurance be, the organization, or someone of her choice?

In the first case it's the aforementioned Dead Peasants Insurance, but that seems unusual for a nonprofit.

In the second, it may be a requirement imposed by the organization's insurance carrier as a condition of insuring the group. Since carriers don't usually do any individual underwriting for group life insurance (which means you don't need a medical exam to qualify, as you would for an individual policy), they try to reduce their risk by increasing the group size, and by including 'good risks' (who would presumably be able to get affordable individual insurance) along with 'bad risks' (who would not, and would be more inclined to sign up for the group insurance).

By: GhostintheMachine

GhostintheMachine — Thu, 01 Dec 2005 11:42:42 -0800

The life insurance requirement kicks in at 3 months, so there's no policy yet, therefore questions of beneficiary haven't been asked. I had assumed my wife would determine that... before evariste's link I'd never considered any other possibility (thanks for that wake-up, evariste).

By: Good Brain

Good Brain — Thu, 01 Dec 2005 11:49:29 -0800

Is this life insurance offered through the employer?

If so it sounds a bit like the organization has some sort of group rate on life insurance and the more people enrolled, the better the rate.

By: Kellydamnit

Kellydamnit — Thu, 01 Dec 2005 11:53:02 -0800

My employer includes life insurance equivilant to my yearly salary as part of my benefits. I can choose to contribute more if I want a more valuable policy.
I was able to pick my own beneficiary.

By: kableh

kableh — Thu, 01 Dec 2005 11:54:13 -0800

I work for a company that was formerly a startup, and when I signed on 4 years ago part of the paperwork was life insurance. The company paid the premium, I believe there was some benefit to them, and we could choose a beneficiary of our own. There was also a buy up program, where we could buy up to a higher multiplier (the payout is based on your yearly salary).

When we were purchased by a (Fortune 100) company, we went through the same thing.

By: croutonsupafreak

croutonsupafreak — Thu, 01 Dec 2005 12:05:30 -0800

My employer does the same thing as Kellydamnit's. It's required, but it doesn't cost me anything unless I decide I want greater coverage.

I'm also required to have car insurance, which I must pay for out of pocket.

By: cior

cior — Thu, 01 Dec 2005 12:28:07 -0800

Could it be that the life insurance is a form of Key Man Insurance?

Here's a definition: "Key man insurance is simply life insurance on the key person in a business. In a small business, this is usually the owner, the founders or perhaps a key employee or two. These are the people who are crucial to a business--the ones whose absence would sink the company."

Unlike Dead Peasant Insurance, it doesn't seem to be as nefarious. Having worked at impossibly small organizations where the incapacitation of the "key man" could easily kill the company, I was comforted to know that my job was made more secure by the insuring of this person.

By: scody

scody — Thu, 01 Dec 2005 14:49:34 -0800

Like others in the thread, my employer automatically provides a basic level of life, long-term disability, and accidental death & dismemberment insurance for free. (The beneficiaries, in all cases, are up to me.) If I want increased coverage, I can upgrade at a small(-ish) cost.

By: kindall

kindall — Thu, 01 Dec 2005 14:58:08 -0800

I don't understand why "Dead Peasant Insurance" is "repugnant" or "nefarious" other than, of course, the fact that it was given a name to make it seem repugnant and nefarious. Insurance companies make money, so there is no profit to be made in insuring every employee -- you'll always pay more in premiums than you get in benefits. Therefore if a company does insure every employee, it is because the employee has some value to the company which must be replaced if the employee were to die.

By: expialidocious

expialidocious — Thu, 01 Dec 2005 15:29:27 -0800

kindall, the article that evariste linked to contains the following paragraph:

Sales of the policies came to a virtual standstill in September 2003, according to the insurer trade group ACLI, when the Senate Finance Committee approved legislation that would have taxed payouts made to companies if the employee had left more than a year earlier. That indicates that most policies aren't being sold to protect companies financially against the loss of key current employees. [emphasis mine].

As to whether it's repugnant or nefarious... well, if an employer had a policy out on me and I weren't a key employee, I'd worry that perhaps they did not take my personal safety as seriously as I did. See what the article has to say about 'insurable interest.'

By: Kirth Gerson

Kirth Gerson — Thu, 01 Dec 2005 17:01:25 -0800

If I'm not mistaken, the insurance policies that companies get for their employees typically have the company as a beneficiary. This is in addition to the beneficiaries the employee gets to pick, and the employee is not told about it. If the worker dies, the named beneficiary collects a year's salary. So does the company.

Is this a bad thing? I don't think so. If the company got no benefit from it, they wouldn't do it. Making the employee pay a premium? That is reprehensible.

By: GhostintheMachine

GhostintheMachine — Fri, 02 Dec 2005 05:02:20 -0800

Well, in this case it's my wife who will be paying the premiums, so I doubt the non-profit will be the beneficiary. And she's a researcher, hardly a key person. So I'm guessing it's a requirement of some group insurance deal.

When/if I find out more, I'll post an update. In the meantime, thanks for all the thoughts here. Some very interesting information I hadn't heard about before. Thanks, all.